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Overview

The emotional roller-coaster of the volatile property market has taken a fresh, if not entirely unexpected, twist this month. Despite near-record stock levels and deteriorating mortgage availability, the 105,769 new properties in this report are priced at a seemingly illogical 3.1% more than last month. However, bullish pricing is a normal reaction to the start of the autumn selling season after the summer holiday period. New sellers and their estate agents have an inbuilt instinct to increase prices every October – which has happened every year since the inception of Rightmove’s House Price Index in 2001. This is the fourth October since the start of the credit crunch and their behaviour has still not changed, illustrating how firmly rising property prices are embedded in the UK home-owners psyche.

Miles Shipside, director of Rightmove, comments: “Given the challenges of the current market, the behaviour of sellers in raising their average asking prices by over £7,000 takes some explaining. Every year, vendors coming to market after the summer holidays hope to take advantage of any positive price impetus from buyers who are keen to be in a new home before Christmas. Between 2007 and 2009, October sellers tried higher prices in spite of the ‘credit crunched’ housing market, and it’s a habit that is proving hard to kick in the ‘spending review’ market of October 2010. It’s not likely to be a successful tactic, though it is a sign that many sellers are not experiencing high levels of financial stress but can’t afford to accept a lower price if they are to make their sums stack up for the next move”.

The average rise measured in October for the last 10 years is 2.0%. This year’s hike of 3.1% is the highest October rise since 2003 (3.3%). While normal for the season, it is unsupported by market and economic fundamentals except in a few areas of major housing shortages. Family homes are in short supply in parts of the south, especially in London where new sellers put up their average asking prices by 5% this month. This is not dissimilar to the 6.5% jump in the capital this time last year, though London buyers’ lack of choice has now been eased by a 34% year-on-year increase in new stock, rising from an average of 3,455 to 4,624 properties per week.

This month’s Comprehensive Spending Review is likely to have a negative effect on housing market sentiment and consequently challenge further any perception of pricing power among sellers. However, as the full details of the cuts are not out in the marketplace yet, perhaps those more ambitious sellers are able to ignore their possible impact and see little reason not to follow historic trends and price optimistically. Furthermore, May’s suspension of Home Information Packs means that there is now no up-front cost commitment required from speculative sellers who wish to test the market at whatever price they or their estate agent are willing to try.

Shipside adds: “Some estate agents are showing a much stiffer resolve than others about the prices they are recommending. For some agents and sellers there is the temptation to launch to the market at a speculative price, knowing one can always reduce it later. In these stock-rich, buyer-poor times such a strategy stands minimal chance of success for the vendor. However, the agent that wins the instruction to sell in the first place is often able to keep the seller exclusively on their books while recommending a series of price reductions to try and get the price to a more saleable level”.

If property choice is limited and buyers are plentiful, then time is often the only penalty for initially pricing too high. However, average unsold stock per agent remains at near-record levels, having dropped back only slightly to 78 this month. With many agents reporting buyer activity failing to pick up significantly after the summer break, the danger is that the impact of the initial launch onto the market is lost for good. With virtually every property for sale transparently visible on the Internet, potential buyers’ initial interest can quickly dissipate. Research by Rightmove (diplayed in the HPI pdf report) shows how the initial surge of interest from buyers in a property’s online details drops away sharply after the first week.

Shipside comments: “The entry of a property to the market always has the potential to create a buzz among watching buyers as they are on the look-out for anything new that suits their needs better than what is currently on the market. When a property is launched to market the seller’s objective is to create a sense of urgency to view amongst buyers and a feeling of fear that by not viewing they will miss out on their dream home. This strategy is enhanced if it is keenly priced as buyers will act fast to get a possible bargain. If a newly marketed property fails to initially impress and find a buyer then it can quickly go stale and get written off even though its price may subsequently be substantially reduced. A high launch price can damage your chances of securing a sale and in recession-hit markets you often end up chasing prices down and achieving less in the end.”

The current weekly run-rate of new property listings (26,442) is up 11% on October last year, so the formerly stock-starved market that helped promote the mini-revival in national average asking prices now has more fresh property to fuel greater competition among sellers. This is against a backdrop of deteriorating mortgage lending statistics further restricting the ability of buyers to pay current prices. With many sellers not forced to sell, and buyers unable to pay more, the market is in danger of a period of stagnation. Either the availability of credit has to relax, or sellers have to accept lower offers—whether voluntarily or because financial difficulties force them to sell quickly at a lower price.

Shipside adds: “Buyers and sellers are staring each other out, and it’s a question of who will blink first. Even if they wanted to, buyers cannot blink unless lenders release more funds for mortgages. As that’s not going to happen, there are likely to be some blinking sellers this winter!”

Bullish pricing is a normal reaction to the start of the autumn selling season after the summer holiday period...
While normal for the season, it is unsupported by market and economic fundamentals except in a few areas of major housing shortages....
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